Oil Companies Pocket Profits While Alberta Canadians Pay The Bills

University of Alberta think-tank, the Parkland Institute, says the provincial government has been “overly generous” with royalty cuts to the oil and gas industry. University of Alberta think-tank, the Parkland Institute, says the provincial government has been “overly generous” with royalty cuts to the oil and gas industry. The oil and gas industry in Alberta is paying even less now than it did during the decade ended in 2008 — and it underpaid by $121 billion in that period, charges the Parkland Institute in a new report. But Alberta’s energy minister and a spokesman for the Canadian Association of Petroleum Producers both said rig utilization rates and drilling right sales show that the province did the right thing when it trimmed royalties over the past 18 months to maintain industry health. “Albertans have seen a stream of royalty cuts that range into the many billions of dollars,” said study author Regan Boychuk, who became the Calgary research manager for the University of Alberta-based think-tank in June, at a press conference in Calgary Thursday. “There’s good reason to believe that those cuts have brought us back below the level we were before the last royalty review.” Rates were raised in January 2009 but following a howl of protest from industry, a series of incentives were introduced. Last month, the Alberta Energy 2009-10 annual report stated the Alberta government relinquished about $1.5 billion in potential energy income from the programs designed to spur oilpatch activity. With the additional $1.4 billion in uncollected royalties projected for the current budget year, the province is expecting to forfeit nearly $3 billion over two years. But Energy Minister Ron Liepert said in an interview “the proof is in the pudding” when asked about the report, which he said he had not read. “This is a not unexpected sort of NDP/socialist view that if you tax everybody, everything will be fine,” he said. “Like I say, we tried that and it didn’t work so well.” He pointed out the new royalty regime cannot be changed without giving notice to the industry of as much as three years. “The book is closed on the fiscal regime. We’re not opening the book. It’s nine months later and we’ve sort of stuck to our word and we’re going to stick to our word.” The Parkland Institute report shows the government failed to meet its own target of collecting a 20 to 25 per cent share of revenue in nine of 10 years from 1999 to 2008. The government has also missed its target of 50 to 75 per cent of “resource rent” from selling the resources, with the average for the decade coming in at 47.4 per cent, according to the report. Travis Davies of CAPP said the companies it represents are paying their fair share and creating jobs. “If you look at 2009, we had 90-some rigs active. In 2010, that’s up to 250. Each one of those represents 100s of jobs for Albertans.” He added the sale of drilling rights in 2009 brought in $740 million. So far in 2010, companies have dished out a record $2.1 billion for the rights to explore and develop on Crown lands. From 1999 to 2008, the value of non-oilsandsoil and gas produced in Alberta exceeded $525 million, the report says. The industry paid $93 billion in royalties and nearly $11 billion for drilling rights, plus $273 billion on exploration, development and operating costs, leaving them with $148 billion in profits. Parkland says $121 billion of that is “excess profit” because it exceeds a standard of 10 per cent of capital employed. Boychuk dismissed government claims that lower rates were needed to support a flagging industry and make Alberta more competitive with other jurisdictions, noting that companies continued to make profits and that Alberta remained one of the lowest cost jurisdictions. He suggested the $5-billion deficit the province expects to run this year would be easily made up if industry paid its share. The Parkland report is called Misplaced Generosity: Extraordinary Profits in Alberta’s Oil and Gas Industry. ((25 NOV 2010))